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Every year, hundreds of migrant workers arrive at makeshift sapphire and ruby mines near Pailin, Cambodia, risking their lives to unearth gems in the landmine-ridden territory. Soon, however, they could be the ones to put millions of others at risk. On the Thai-Cambodian border, a rogue strain of malaria has started to resist artemisinin, the only remaining effective drug in the world's arsenal against malaria's most deadly strain, Plasmodium falciparum. For six decades, malaria drugs like chloroquine and mefloquine have fallen impotent in this Southeast Asian border area, allowing stronger strains to spread to Burma, India and Africa. But this time there's no new wonder drug waiting in the wings. "It would be unspeakably dire if resistance formed to artemisinin," says Amir Attaran, a professor of law and medicine at the University of Ottawa who has written extensively on malaria issues.

Malaria strikes about 250 million people around the world every year and kills nearly a million. The mosquito-borne parasite is the third deadliest infectious disease in the world, after HIV/AIDS and tuberculosis, and most of its victims are children. With the help of tens of millions of dollars from the Bill and Melinda Gates Foundation and various governments, the global health community  from biochemical engineers in Berkeley, Calif., to village volunteers in Battambang, Cambodia  is racing to eliminate the increasingly resistant parasite before it's too late. This week, the Global Fund signed off on a $220 millionplus project called the Affordable Medicines Facility for malaria (AMFm), a controversial two-year program that will drop the price of the recommended malaria treatment in nine malarial countries. In Cambodia, the only country in Asia participating in the program, the price of malaria medication will fall to only $0.05 per dose for distributors. Even with markups down the supply chain, the best malaria medicine will, for the first time in Cambodia, also be the cheapest. (See pictures of the Global Fund's work.)

Diseases have been stamped out before. The last case of naturally occurring smallpox was in 1977, after the disease killed about 300 million people earlier in the century. But finding a cure for malaria has proven more elusive. Artemisinin, which is still considered the most effective malaria treatment today, is derived from sweet wormwood, an herb native to Asia. It's been used to fight the disease in China for more than 2,000 years, but it wasn't until 1965 that the cure was isolated and purified by the Chinese military after its soldiers started falling ill during the Vietnam War. The treatment caught on in Vietnam as a crushed powder, and after the drug reduced the malaria death toll in Vietnam 97% from 1992 to 1997, it was touted as the miracle drug that could save people everywhere from the disease. A nonprofit drugmaker in San Francisco hopes that by 2012, it will help put a synthetic artemisinin on the market at a fraction of the cost of harvesting the wormwood herb.

But artemisinin has been taken in Southeast Asia for more than 30 years  more than two decades longer than in most of the world  which has given the parasite more time to adapt. Getting people to take the right treatment has also proven to be a public-health challenge. As a fast-acting drug that typically clears out the parasite in less than 72 hours but doesn't remain in the body, artemisinin is prescribed with a slower partner drug to clean out any straggler parasites that might have developed resistance. Taking a partner drug with artemisinin, called combination therapy, is required by law in Cambodia and Thailand, but it's difficult to enforce. Since the partner drug  typically mefloquine in Southeast Asia  has more side effects, some people take only the artemisinin pills. This may work to clear out the parasite for one person, but it leads to rapid drug resistance when the practice is widespread. Globally, only 3% of malaria patients receive the proper artemisinin combination therapy. (Read about the search for a vaccine.)

It's not random that dangerous new strains of malaria continue to crop up on the Thai-Cambodian border. In addition to having longer years of exposure to the miracle drug, residents like the gem-mine workers rely on an unregulated, informal health sector, rife with cheap counterfeits and improper treatments. Last month, a Gates-funded study found that 60% of malaria drugs in the area were substandard or counterfeit. Many of the counterfeits contain a small amount of artemisinin so they can pass authenticity tests, and some fake drug containers have holograms logos more sophisticated than the ones on the genuine boxes. Even for experts, it can be impossible to tell the difference between the fakes and the real article just by looking at them. What's so important about this is that when you have thousands of people taking improper or low dosages, the malaria parasite develops resistance more quickly.

The Global Fund's new plan proposes to solve this public-health crisis with a market-based solution. To undercut sales of counterfeits and alternative treatments, the Global Fund initiative will spend more than $220 million to subsidize genuine, effective combination-therapy drugs, and in Cambodia, it will spend an additional $10 million to ensure good distribution around the country. The idea was first proposed in 2004 by a committee of the Institute of Medicine headed by Kenneth Arrow, a winner of the 1972 Nobel Prize in Economics. The idea is that if the market is relied on to root out fake pills and bad treatments, the real drugs will come to dominate the supply. Supporters say competition between private pharmacies would keep prices low and prevent middlemen from simply pocketing the subsidies and continuing to sell fakes. "No one will want to sell counterfeits when the real doses are 5 cents," says Duong Socheat, director of Cambodia's National Malaria Center.

Not everybody, however, is convinced. Bernard Nahlen, the deputy coordinator of the U.S. Malaria Initiative, says spending hundreds of millions before there's any proof that the plan will work is an ill-advised investment of finite malaria funds. "In the absence of evidence, it's a little difficult to make that leap," he says. Last year Congress specifically forbid any of the $48 billion the U.S. government slated for AIDS, tuberculosis and malaria from going to the AMFm program until it proved successful. "The biggest bang for the buck is prevention," says Nahlen.

So far, the fund's market-based strategy has been tested only in two districts in Tanzania and in a small pilot in Uganda, but the results were encouraging. In Tanzania, the number of families who bought genuine artemisinin combination-therapy drugs jumped from 1% to 44% after one year, and in Uganda, the proportion of people buying the recommended drugs went from 0 to 55%. Nahlen, however, points out that local health infrastructure varies greatly, and success in one place does not necessarily mean success in another.

Arrow, 88, a professor emeritus at Stanford, says he is "baffled" by the U.S.'s refusal to support the plan. The cost of global artemisinin combination-therapy subsidies, he says, would run only about $300 million a year, a relatively small amount compared to campaigns to fight HIV/AIDS and tuberculosis. Drug subsidies alone won't eliminate malaria, he admits, but combined with indoor mosquito spraying, bed nets and proper monitoring of what different areas need, Arrow says, "the world can eliminate malaria."

Whatever the tactics, everybody can agree on one thing: time is running out. Modeling by the Mahidol-Oxford Tropical Medicine Research Unit published in the Malaria Journal in February predicts that if nothing is done in the next two decades, "resistance to artemisinins will be approaching 100%." And if that happens, it won't be long until the resistant strain spreads from Cambodia's precious gem mines to Africa, putting half the world's population at risk of catching what would be an untreatable, deadly disease.